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Friday, November 23, 2012

It's become a tradition here to put up a quick video glimpse of Black Friday, a microcosm of the former engine of global growth; the insatiable American consumer. For those that live outside the United States, Black Friday is the day after Thanksgiving when stores offer a limited amount of goods on sale.

Americans line up for hours, sometimes days in advance to purchase more consumer goods that they do not need. Then when they breach the store walls they turn into true animals, sometimes fighting for these goods.

It is a sad display every year for the people that make up the country that has for decades been the consumer of the world, borrowing every possible dollar to continue spending once their savings and incomes were depleted.

When the American consumer hit the spending wall in 2008, the government stepped in and has done its best to fill the void with trillions in annual deficits. That will soon end as well, and then the true hangover will begin. Fortunately for America, when its over they will be able to keep their cars, TV's, phones, ipads, and homes all purchased on credit with no possible way to ever pay off the debt. It will be the American creditors, first those that lent to consumers and now those that foolishly lend to the government that will take the worst of the losses.

Thursday, November 22, 2012

The guys over at Future Money Trends have put together another entertaining video describing a possible chain of events should Israel attack Iran. While I do not factor in war as a reason to own precious metals or energy (they will perform very well without war), it remains as another black swan type event that would probably send both markets surging higher.

This video essentially takes every possible bad event that could occur should Israel attack Iran (other than perhaps a terrorist type attack on US soil) and puts them together; creating what would be a worst possible scenario. It is important to review the possible chain of events in your mind to understand that one or more (but probably not all) of these events could occur.

Wednesday, November 21, 2012

Over the past week we have had both a visual and audio analysis presented from Kyle Bass on what is coming for Japan in the years ahead. He laid out a full buffet of triggers that would ignite the black swan event in their bond market.

The truth is, as John Mauldin discussed beautifully in his book Endgame, the trigger is not one single event but a long chain of events that lead up to that moment. He compared it to pieces of sand that are dropped into a pile and begin to form a mini mountain. At some point you know that sand will have sort of an avalanche type effect and change shape. Some would look at the final piece piece of sand as the reason for the avalanche, but others would look at the entire structure and see that it was due to happen at any moment.

This is the state of affairs in Japan as we move forward week by week. After Bass finished describing the details of Japan in his most recent interview he was focused on emphasizing that he would not be naive enough to think he could call the exact time Japan would have its moment.

However, he sees the pile of sand in its entirety and understands that it is very vulnerable for an avalanche event. With that we can look at the moment recent piece that hit this morning; Bloomberg reports that Japan's exports have reached a three year low, and after two quarters of growth Japan is back in recession.

The following excellent chart shows just how far Japan has fallen from global dominance in 1986 when their share of US imports (blue) peaked at 30%. At that point China (grey) was just a sliver on the chart. China now holds 27% of the total. How the world has changed over the past 26 years.

Sunday, November 18, 2012

I'm going to do my best not to "gush like a little girl" over the person who I personally hold in the highest regard over all other financial market participants due to both his track record and ridiculous understanding of the global economy.

In brief, because I have told this story in depth a few times before, Kyle Bass was one of the handful of investors that made massive bets against subprime mortgages through Credit Default Swaps (CDS) back in 2006 - 2008. He then sold out of his position in 2008 and re-invested the profits into gold and bets against Greece government bonds. This was two years before Greece was in any headlines, just as he placed bets years before any headlines emerged on subprime mortgages.

Today he has the same trade on with a massive bet against Japan. Just as with his subprime mortgage and Greece bets he continuously is called "crazy" as the mainstream feels that betting against Japanese debt and currency (a losing trade for two decades) is the absolute wrong move.

Before you read or watch any financial article or show for the rest of the month, I would highly recommend reading this letter in full. If Japan rolls over in 2013, it will be looked back on as perhaps the most prescient letter in history; the equivalent of having the blue print for why you should have bet against subprime mortgages and Greece before they blew up. Bass feels that based on the way Japan is currently priced in the market compared to the risks the country faces, it could be the greatest opportunity in modern financial history. Click "View In Full Screen" on the bottom right to enlarge.

"We should be careful to get out of an experience only the wisdom that is in it and stop there lest we be like the cat that sits down on a hot stove lid. She will never sit down on a hot stove lid again and but she will never sit down on a cold one either."

- Mark Twain

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait."

- Charlie Munger

"Live as if you were to die tomorrow. Learn as if you were to live forever."

- Gandhi

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I wait for a situation that is like the proverbial shooting fish in a barrel."

- Jim Rogers

"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

- James Grant

"At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

- Ben Bernanke, March 2007

"Everything that needs to be said has already been said. But since no one was listening, everything must be said again."

- Andre Gide

"When people are getting richer and richer but they're not actually producing anything, it can't end well."

- Louis CK

"In economics things take longer to happen than you think they will, and then they happen faster than you thought they could."

- Rudiger Dornbusch

"I don't write about what I know. I write to find out what I know."

- Patricia Hampl

"Chains of habit are too light to be felt until they are too heavy to be broken."

- Warren Buffett

"Everyone has a plan until they get punched in the mouth."

- Mike Tyson

"Interest on the debt grows without rain."

- Yiddish Proverb

"You can have comfort, or you can have value. You cannot have both."

- Jim Grant

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

- Warren Buffett

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"Men who can both be right and sit tight are uncommon."

- Jesse Livermore

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

-Ludwig von Mises

"Most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them."

- Howard Marks

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

-Mark Twain

"None are more hopelessly enslaved than those that falsely believe they are free."

-Goethe

"The longer the markets disobey basic rules of valuation, the bigger the opportunity for good investors to reap the benefits. Value investing works precisely because markets become dysfunctional at times."

-John Coumarianos

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

-Sir John Templeton

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"People only accept change in necessity and see necessity only in crisis."

-Jean Monnet

Requiring a central bank to print money to increase government's purchasing power invariably ignites a hyperinflationary firestorm. The result through history has been toppled governments and severe threats to societal stability.

- Alan Greenspan

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"

-Steve Jobs

"I'd be a bum on the street with a tin cup if the markets were always efficient."

-Warren Buffett

"The market can stay irrational longer than the investor can stay solvent."

- Keynes

"While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it."

-Ayn Rand, 1974

"The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

- F. Scott Fitzgerald

"All our life, so far as it has definite form, is but a mass of habits - practical, emotional, and intellectual - systemically organized for our weal or woe, and bearing us irresistibly toward our destiny, whatever the latter may be."

-William James

"Men it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

-Charles Mackay

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.

- Stephen Hawkings

"Give me control of a nations money supply, and I care not who makes it's laws."

- Amschel Rothchild

Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

- Sigmund Freud

Many of life's failures are people who did not realize how close they were to success when they gave up.